Cost Terms, Concepts and

Classifications
ACCT 105 – WEEK 2
Cost
• Cost may be defined as the value foregone or sacrifice of resources for
the purpose of achieving some economic benefit which will promote
the profit-making ability of the firm.
Cost Pools
• By type of cost
• By source
• By responsibility
Cost Object
• A cost object is any product, service or organizational unit to which
costs are assigned for some management purpose.
Cost Drivers
• A cost driver is any factor that has the effect of changing the level of
total cost.
Cost Assignment
• Cost assignment is the process of assigning costs to cost pools or from
cost pools to cost objects.
Cost Allocation
• Cost allocation is the assignment of indirect costs to cost pools.
Allocation bases are cost drivers used to allocate costs.
Classification of Costs
• Costs classified by Nature or Management Function
• Manufacturing Costs
• Direct Materials
• Direct Labor
• Manufacturing Overhead
• Other Manufacturing Overhead
• Nonmanufacturing Costs
• Marketing Costs
• General and Administrative Costs
• Production Costs in Service Industry Firms and Nonprofit Organizations
• Costs classified according to the Timing of Recognition as Expense
• Product Costs
• Period Costs
• Costs classification on Financial Statements
• The Statement of Financial Position
• The Income Statement
• Cost classification for Predicting Cost Behavior
• Variable Costs
• Fixed Costs
• Semivariable Costs or Mixed Costs
• Costs classified by Types of Inventory
• Raw Materials Inventory
• Work-in-process Inventory
• Finished Goods Inventory
• Finished Good Inventory
• Merchandise Inventory
• Costs classification according to Traceability to Cost Objective
• Direct costs
• Indirect costs
• Costs classification according to Managerial Influence
• Controllable cost
• Noncontrollable cost
• Cost Terminologies Used for Planning and Control
• Standard Costs
• Budgeted Cost
• Absorption Costing
• Direct Costing
• Information Costs
• Ordering Costs
 • Out-of-pocket Costs
• Cost classification according to a Time-frame Perspective
• Committed Cost
• Discretionary Cost
• Costs classified according to Time Period for Which the Cost is Incurred
• Historical costs
• Future costs
• Costs classifications for Decision-making and other Analytical Purposes
• Relevant Costs
• Incremental Costs
• Sunk Costs
• Opportunity Costs
• Marginal Costs
• Value-Added Costs